NAB Research discusses USD/JPY outlook and notes that its fair value model favors the view that USD/JPY is likely to pivot around the 107 level in the near term. NAB targets USD/JPY around 109 in Q3 and Q4.

"Our forecast that sees the pair edging back towards ¥109 as we head towards the second half of 2020 is predicated on our base case scenario that sees a global economic recovery on a strong footing in the second half of this year. This implies buoyancy in equity markets along higher core global yields. Still, we are living in unprecedented times with an elevated level of uncertainty.

Thus, we expect more spikes in risk aversion that should result in USD/JPY dips such as the one we experienced in the past fortnight. ‘Known unknows’ such the potential risk of a second COVID-19 wave of infection alongside US China tensions (which are unlikely to go away and may well intensify ahead of the US Presidential election), are potential sources of volatility and on a worse case they could derail our base case for a global economic recovery," NAB notes.

"Asset managers’ long JPY positioning has also caught our attention. Positioning is now the longest since 2013 and the unwind risk is a potential upside for USD/JPY, if it eventuates. Medium term we are also keeping a close eye on central banks’ balance expansion, the recent Fed aggressiveness, if sustained is a potential headwind for USD/JPY," NAB adds.